The concept of reasonable assurance in the context of an entity's internal controls recognizes that
A) Auditors may fail to detect material misstatements.
B) Proper internal controls guarantee that material misstatements will not occur.
C) Proper internal controls preclude fraud.
D) The costs of some controls may be too high to implement in relation to potential benefits.

Question

Quizplus · Accepted Answer

Reasonable assurance acknowledges that internal controls cannot provide absolute assurance against material misstatements or fraud, as auditors may still fail to detect them. Cost-benefit considerations must be taken into account when designing and implementing internal controls. Therefore, the costs of some controls may be too high to implement in relation to the potential benefits, and management must make informed judgments about which risks to mitigate and which are acceptable at an acceptable level of risk.

The Concept of Reasonable Assurance in the Context of an Entity's